It's all about rate cuts going forward

The US Inflation data came in with a surprise and according to one of the scenarios that we mentioned in our previous report, which gave the market more clues and confirmation that the Federal Reserve’s tightening cycle is over.

Indicator Actual Prior
CPI MoM 0.0% 0.4%
CPI YoY 3.2% 3.7%
CPI Ex Food & Energy MoM 0.2% 0.3%
CPI Ex Food & Energy YoY 4.0% 4.1%


The CPI MoM showed no increase in October for the first time since July of last year, while the YoY slowed down to 3.2%, the lowest level since July of this year.

The Core CPI MoM increased by 0.2% despite the fact that estimates were to increase by 0.3%. This is the lowest MoM increase since June.

The most important figure was the Core CPI YoY which unexpectedly slowed to 4.0% down from 4.1%, while it had been anticipated to remain stable. This is the 7th straight monthly slowdown in a row and the lowest level since September 2021.


Fed Fund Futures

The data confirms that inflation is on the right track and that the Federal Reserve will not be raising rates again going forward. On the other hand, the focus now shifts towards the timing of the first rate cut.

The Fed Fund Futures are now pricing in that the first 25bps rate cut would happen in June with over 144% chance, while May’s meeting probability is at 80%.

Going forward, the next big trades will be based on how sooner or later the first rate cut will happen. The sooner the rate cut, the better it will be for FX and stocks.


DXY reached targets

The US Dollar Index declined sharply and quickly right after the data, reaching as low as 104.0, surpassing the targets including 104.70 and 104.40, while the technical indicators are now more bearish than before.

In the meantime, the weekly close below 103.70 would be another confirmation of deeper declines in the coming weeks, but as mentioned above, the upcoming trends will be based on the expectations of the first rate cut. The sooner the rate cut, the weaker the US Dollar.


PPI and retail sales ahead

During the US Session today, another dataset will be released, including the PPI and the Retail Sales data, which might have another significant impact on the markets, depending on the outcomes.

In general, estimates point to softer data compared to the previous month. Retail Sales are to decline by -0.3% while Core Retail Sales are to decline by -0.2%.

The same scenarios of yesterday’s report apply to today’s data. However, it might be less effective, and market expectations might not change much. On the other hand, the biggest impact occurs if the data comes with a surprise lower, this might push the first rate cut expectations further to a sooner date, instead of June, it would be May.

The market reaction would be almost the same as what we saw yesterday: another boost in stocks, while the US Dollar might be under pressure once again.


Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.


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